Retail Loyalty Programs: Types of Programs and Loyalty Marketing

Before we get into the types of loyalty programs and how they can help your retail store, let’s take a look at some quick facts about the state of these programs in 2017. All data is from The Loyalty Report of 2017, which surveyed over 28,000 shoppers using collectively over 400 loyalty programs. As we’ll discuss later, you can see that there is plenty of room to improve customer satisfaction with retail loyalty programs.

The American consumer is, on average, now enrolled in 14.3 loyalty programs, and active in 6.7. This is a 31% increase over the past four years.

57% want easier mobile use of loyalty programs.

Only 22% are satisfied with the level of personalization of their loyalty program.

29% agree that a particular retail loyalty program makes their experience better.

For some inspiration, here are a few of the top ranking loyalty programs by industry:

Airline: Southwest

Hotel: Hilton

Grocery: Kroger

Drugstore: Walgreens

Health and Beauty: Sally Beauty

Department Store: Kohl’s

Apparel: Carter’s

Other Retail: Amazon

QSR: Panera Bread

Casual Dining: Papa John’s

Why Are Customer Loyalty Programs So Important?

Keeping existing customers is much more valuable than recruiting new ones. Advertising and marketing to attract new people are expensive and unpredictable. Even more importantly, returning customers spend 67% more than first-time shoppers. Loyalty programs are a great way to keep your best customer happy. People like to feel rewarded for their business. It’s nice to get free things, and even nicer to feel valued and a part of something bigger. Most major retailers, and many smaller shops, offer some sort of loyalty program. These can range from a punch card to Amazon Prime.

Rewards programs are great for two reasons: they get people to come back, and, because loyalty members are more likely to spend more money, they increase the average transaction value. In addition to the stats from the Loyalty Report cited above, they found that 81% of consumers are more likely to continue shopping at a retail store if they are a loyalty member. 66% change how they spend based on the potential benefits of the loyalty program. Yet only 22% thought they were rewarded with a better shopping experience because of it. Clearly, there is room to improve retail loyalty programs. Below is a look at consumer satisfaction of their loyalty programs, based on industry category.

Types of Loyalty Programs

Points

This is the simplest and most common type of loyalty program. You earn points based on the amount which you spent. The points can be redeemed however the retailer chooses, whether it’s with free product, discounts, or some other type of reward. Good loyalty programs even personalize this for each customer. The point system is great for retailers who have frequent shoppers making smaller purchases, such as a liquor or convenience store.

Many retailers offer a point for every dollar spent and then a gift card at certain milestones. Others use variations. Best Buy, for instance gives 0.5 points for every dollar spent and a $5 gift every 250 points. While only 1%, it keeps people involved by setting a goal and encouraging more spending.

Tiered Points

Many larger retailers have moved to this system. This rewards more valuable customers and allows goals to be reached more quickly. Some have combined this with the retailer’s specific credit card members. It adds another layer of exclusivity, making the customer feel more valued. It also doesn’t reward one-time shoppers, saving you from people who are taking advantage of your loyalty program without ever planning on returning.

GAP offers a range of benefits with their tiered loyalty program. Members with a GAP credit card get more points for every dollar spent and extra bonuses like birthday gifts and 10% off every purchase. A third tier exists for those with over 5,000 points. Check out their loyalty breakdown below:

Coalition/Partner Programs

Some retailers benefit from teaming up with businesses that are trying to reach a similar market. It’s, of course, important to avoid partnering with direct competitors and instead a retailer who is likely to attract the same type of client. Under this system, the loyalty program becomes more valuable to the customers since they can redeem points or rewards with multiple retailers. Smaller retail stores also benefit from partnering with more well-known shops and increasing their brand recognition. While fewer larger retail companies will benefit, there are some that can: stores with infrequent customer purchases. In this case, customers earn points at multiple locations that will remind/tempt them to visit the coalition retailer sooner than they would have otherwise.

Upfront or Membership Fees

What comes to mind for most people? AMAZON. Prime membership has been ridiculously successful and is helping define the future of retail. Costco and Sam’s Club have done this profitably for years as well. Other big retailers are flying under the radar with their membership deals. REI offers a lifetime membership for $20 with a 10% member dividend on all purchases and special access to clearance and used items. Some brick and mortar locations also have in-store activities that are free for members.

The End Goal of Retail Loyalty Programs: Measure ROI and Profit

It’s great to reward your best customers, but your ultimate goal is to bring more customers into your store and, more importantly, create regular visits. This directly increases the overall customer lifetime value. If your loyalty program is greatly increasing this, you can afford to give away more substantial benefits. If not, you must be careful to not lose money on your loyalty program. The key is to tracking and analyze the total purchases and measure different behaviors between members and non-members. You can use your retail POS system to help you organize and simplify your sales data. This consolidates valuable information in digestible ways so you can make constructive business decisions.

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As Content Strategist at KORONA, Michael comes from a background in blog writing and content management as well as extensive use of various point of sale systems. He's passionate about helping small businesses reach their potential, and Jeopardy. For inquiries and suggestions please contact our marketing team.